Right at this moment upfront mortgage insurance on an FHA insured loan is 2.25%. Effective on new FHA loans October 4, 2010 and later, the new upfront mortgage insurance premium will be 1.00%. On a $400,000 loan the 2.25% premium pencils out to $9,000 which is typically financed (added to the FHA base loan amount); in a month the upfront premium will be reduced to $4,000.
This might sound like good news, and a break for those who wish things would let up; but there is a catch. The yearly mortgage insurance (paid monthly) is increasing to 85-90 basis points (currently it's 50-55%). An increase of 0.3% of the yearly premium will increase the monthly payment (based on a $400,000 loan amount) to $300 (0.90 x $400k =$3,600/12) from $183 (0.55 x $400k =$2,200/12) an increase of $116.47 per month.
Using an interest rate of 4.25% and a based loan amount of $400,000, this is how it breaks down.
FHA Case Number BEFORE October 10, 2010:
$400,000 plus $9,000 = $409,000 amortized for 30 years at 4.25% = principal and interest of $2012.03 plus the yearly mortgage insurance of $183 = $2,195.03
FHA Case Number issued October 4, 2010 and after:
$400,000 plus $4,000 = $404,000 amortized for 30 years at 4.25% = principal and interest of $1,987.44 plus the yearly mortgage insurance of $300 = $2,287.44.
The new FHA mortgage insurance premiums have an increase in payment of $92.41 based on this example. This impacts both purchases and refinances using FHA insured mortgages.
For more information on the changes, you can go to www.fhaloansnow.net, or you can call me directly at 310-498-2700.
-Mayer Dallal
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